Gold in Times of War: Is It Always a Safe Haven? And Why Did It Fall Despite the U.S.-Iran Conflict?
Gold has long been associated in people’s minds with a safe haven that investors turn to in times of war and geopolitical turmoil.
But the reality in modern financial markets is more complex than it seems while gold rises during some conflicts, it may fall suddenly during others.
The U.S.-Israeli war on Iran, which broke out on February 28, 2026, posed a real test of this long-standing rule. The price of gold fell by more than 15% despite the escalating conflict, dropping from $5,200 per ounce to $4,400 per ounce today. So what is the secret behind this paradox?
First: The Traditional Relationship Between War and Gold
Historically, gold tends to rise during times of war for several key reasons:
- A flight to safety: When wars break out, investors rush to offload high-risk assets such as stocks and bonds, turning instead to gold, which is not tied to any specific counterparty.
- Fear of financial instability drives capital toward the yellow metal.
- Protection of national reserves Central banks in countries vulnerable to sanctions or conflicts resort to buying gold in large quantities, as it cannot be frozen or confiscated like dollar-denominated assets.
- Combating inflation During wars, governments spend vast sums on armaments, print money, and accumulate deficits, which weakens the purchasing power of currencies. Gold, which has withstood inflation for centuries, becomes the only logical hedge.
History shows that this pattern has repeated itself in major conflicts, from the two world warswhen gold prices soared to unprecedented levels to the Russian invasion of Ukraine in 2022.
Second: Why Gold Defied the Norm in the U.S.-Iran War
Although gold rose to $5,400 per ounce on the night the conflict began, it subsequently retreated and continued to fall.
There are four main reasons behind this unusual phenomenon:
1- Rising Oil Prices—A Double-Edged Sword
When the war broke out, oil prices surged above $100 per barrel due to supply disruptions in the Strait of Hormuz.
This surge pushed inflation expectations to high levels, leading investors to anticipate that the Federal Reserve would keep interest rates high for longer, and perhaps even raise them.
When interest rates rise, bonds and fixed-income assets become more attractive, while holding gold—which yields no return—becomes more expensive.
2- The Rise of the Dollar and the Grip of Monetary Policy
The U.S. dollar stands as a pivotal factor in the gold equation, as gold is priced globally in dollars; thus, the higher the dollar rises, the higher the cost of buying gold becomes for holders of other currencies.
The Federal Reserve has kept interest rates in the 3.50%–3.75% range, with signals that they may remain high for a longer period.
These expectations have driven up yields on 10-year U.S. Treasury bonds, significantly increasing the cost of holding gold.
3- Liquidity Forces Investors into Forced Selling
When stock and bond markets collapsed with the outbreak of the war, financial institutions and investment funds needed quick liquidity to cover their losses and meet margin requirements, and gold positions had generated significant profits in the preceding period.
Financial institutions were liquidating their profitable gold positions to meet additional margin requirements in the stock and bond markets, and this is the great paradox: the war, which caused losses in other markets, forced investors to sell their gold, thereby increasing downward pressure on its price.
4- Slowdown in Central Bank Purchases
Central banks played an unexpected role during this war; instead of increasing their gold purchases, many of them temporarily halted buying. The Turkish Central Bank, for example, sold 52 tons of gold between February 27 and March 27.
Exchange-traded funds (ETFs) also stopped buying and switched to selling, liquidating about 90 tons of the 150 tons they had accumulated in January and February.
Third: Additional factors contributing to the decline
- Selling before the event: Often, investors buy gold before a war as a hedge, and then some begin selling when the actual event occurs, In line with the common saying
“Buy on the rumor, sell on the news”
- The time factor: The war shifted from a “blitzkrieg” to a “war of attrition,” and this prolonged duration reduced the impact of the initial shock and gave markets a chance to adjust.
- The dollar’s continued strength: With interest rates remaining high, the dollar has stayed strong, continuing to put pressure on gold prices, which are denominated in dollars.
Why did gold start rising again after some news of a truce?
The irony is that gold has sometimes risen on news of de-escalation or a ceasefire between the U.S. and Iran. This is because:
- Lower oil prices eased inflationary pressures
- A weaker dollar supported gold
- Growing expectations of future U.S. interest rate cuts
These factors had a greater impact than the geopolitical factor itself.
Is gold still a safe haven?
Yes, but modern markets have become more complex than before.
Gold no longer moves based solely on wars; it is also influenced by:
- The strength of the dollar
- Interest rates
- Bond yields
- Inflation
- Oil
- Central bank policies
- Movements of global investment funds
Therefore, we may sometimes see wars driving gold prices up, and at other times causing them to fall if monetary factors have a stronger influence.
Ultimately, gold usually benefits from wars and political tensions because it is considered a safe haven, but the current conflict between the U.S. and Iran has revealed that the impact of the dollar, interest rates, and inflation may be stronger than the geopolitical factor itself.
It can be said that gold does not move solely because of war, but rather because of the way war affects the global economy, monetary policies, and financial markets.
